Two budgets battle it out at Tiverton hearing

Two budgets battle it out at Tiverton hearing

Justin Katz speaks for a budget that comes without a tax hike.

Justin Katz speaks for a budget that comes without a tax hike.
Justin Katz speaks for a budget that comes without a tax hike.
By William Rupp

Tiverton voters must choose between two budgets at the Financial Town Referendum on May 20: one with a 1.29 percent tax hike that includes a $600,000 line item added to a so-called “rainy day fund,” or one with no tax hike without the addition to the unreserved fund balance.

Both budgets were presented to about four dozen people at a Financial Town Hearing last Thursday, May 1, in the cafetorium of the Tiverton Middle School.

There appeared to be a preference for the budget with a tax hike, although many of the speakers favoring the proposed $47.94 million spending plan were Town Council or Budget Committee members who worked for about seven months on the budget.

Justin Katz, a Tiverton resident who drew up the petition for the no-tax hike budget of $47.3 million, was the target for most of the questions from the floor. He shared the stage with town officials seeking a budget with the modest tax hike.

Katz was not without his supporters, though. Former Budget Committee member Jeff Caron, for one, asked: “Whose bank account should the surplus money be in?”

Katz said he believes Tiverton has already met the mandate of its Town Charter for a rainy day fund.

“I don’t see a reason for exceeding the Charter requirement,” he said.

Katz’s petition also says that his proposed budget fully funds the schools, the town and all line items recommended by the Budget Committee and Town Council and still adds about $200,000 to the unreserved general fund.

He also said he see no merit in the claim that the surplus that exceeds the charter requirement “is crucial for ensuring a good credit rating for the town.”

“I’d rather have the dollars today in my pocket,” he said. “I think the best budget lets people keep their money.”

Town Council President Edward Roderick said Katz and his petition are the result of “misguided thoughts” that will “cause bigger problems in the future.”

Town Councilor Jay Lambert also rapped Katz for making claims that town officials already have uses in mind for the unreserved fund and challenged him to provide details. He also said the town benefits best from a healthier surplus.

Katz disagreed.

“I approached the budget differently,” he said. “I think there is more benefit to the town with a lower tax rate.”

Budget Committee member Joseph Sousa said: “I know a zero percent increase sounds great.”

But, he said, “we need to put money away each year to avoid big bumps” in spending for “unpredictable costs” and” to save millions in bond interest payments.”

Sousa said that the Budget Committee is trying “to smooth out” spending with small increases each year.

Katz responded by saying that he believes spending items, such as road and school repairs and pension costs, should be written into each budget — not treated as separate items for rainy day funds or bonds.

“I don’t think people would be upset with a bump in one year if they have years of zero percent increases,” he said.

Town Councilor James Arruda said: “I hope people see how hard the Budget Committee and Town Council worked to put together this budget.”

“We’re just not putting away money in pockets for future spending,” said Town Councilor Brett Pelletier. “A serious conversation on spending is going on. We’re taking a hard look at this.”

Budget Committee Chairman David Perry, who presented the $47.9 million budget along with Budget Committee member Laura Epke, closed the hearing by stressing that “this was a seven-month process” that included input from the Town Council and all town department heads.

Waving Katz’s petition, Perry said: “This seems like something that was knocked out at his dining room table.”

Katz replied by reminding everyone that his alternative budget really only changes one line item: for the unreserved fund. Tiverton taxpayers can keep more money in their pocket during hard times, he said, during a year that town government does not need additional taxes.

The 1.29 percent tax hike will raise property taxes from $19.37 per thousand to $19.62. It would mean the owner of a property assessed at $300,000 would pay an additional $75 for the 2015 tax year.

The town-wide referendum will be held on May 20 from 7 am to 8 pm at three polling places: the VFW, Countrywide Estates and Amicalbe Congregational Church. You can vote early at the Town Hall on May 15, 16 and 17.


    Please review this information and make an informed decision as you consider voting for a budget proposal for the Town of Tiverton.

    Will my taxes go up if I vote for Option 1?
    Your taxes will go up very little. Option 1 calls for very small increase of only 1.29% (Portsmouth voters recently approved a 2.4% increase). This is one of the lowest tax increases in recent history. In fact, the annual property tax bill on a home assessed at $300,000 will increase by only $74. That’s right, only $74 a year to ensure we maintain our schools and services, while strengthening our position with investors.

    Why should I not vote for the “0.0% tax increase” promised by Option 2?
    The budget proposed in Option 2 is the latest attempt by a small group with an extreme political agenda to cripple the town financially. Having failed in previous years to decimate funding to our school and community services, their strategy now is to strip the Unrestricted General Fund and claim the result is a “0.0% tax increase” that won’t cut services. Based on how finances actually work, this view is either woefully uninformed or intentionally deceptive. They even foolishly refer to the town’s General Fund, the guide of a town’s financial health, as a “slush fund.” As is usually the case, when something sounds too good to be true, it is.

    What is the purpose of the Unrestricted General Fund?
    The unrestricted general fund balance provides for stable tax rates, investment income and greater long-term planning capability. In addition, it ensures short-term cash availability when unanticipated expenditures occur. The unrestricted general fund balance has a significant impact on the town’s bond rating and its ability to borrow money for long-term investments in the community. Higher bond ratings result in lower interest rates on the town’s financial obligations. That’s why it must be maintained at sufficient levels.

    How much should the town allocate to the Unrestricted General Fund?
    Tiverton’s charter mandates a minimum amount of 3% of the total budget’s expenditures. However, the Government Finance Officers Association recommends, at a minimum, that governments “maintain unreserved fund balance in their general fund of no less than five to 15 percent.” Based on best practices, Tiverton’s elected officials have recently tried to increase the amount to stabilize taxes and town finances, and Option 1 puts the amount at only 4.7%, which is certainly reasonable. The town’s independent auditor even twice commended the council for its policy of wisely and prudently beginning to increase the town’s unreserved fund balance. Furthermore, two former Town Councilors who proposed growing the amount by 0.5% each year have gone against their own thinking, shortsightedly endorsed budget option 2, and put the town’s finances at risk – all to save just $74 a year.

    How much do other Rhode Island towns allocate to the Unrestricted General Fund?
    Our immediate neighbors, Portsmouth and Middletown, require a minimum of 8%, and 30 of the 39 other communities had a higher combined fund balance than Tiverton, as indicated in a 2012 State of RI report designed to measure fiscal stress on communities. Neighboring Little Compton’s Budget Committee is even advocating a 12% balance in order to maintain maximum financial flexibility and the only AAA (highest) credit rating in the state.

    Does the balance in the Unrestricted General Fund really drive bond ratings?
    Yes. In fact, Moody’s bond rating agency cautioned the town that building its reserves instead of drawing them down will “remain an important rating factor” for future borrowing (like next year’s library bond.) Tiverton’s town treasurer also warned regarding our rating in a May 1, 2014 letter to residents, “Moody’s has developed a new rating methodology … review of our general fund balance accounts for 50% of the Finance Review – that is a hefty portion.” She further cautioned, “Tapping into our UGF could cost us down the road. I urge you to protect your investment in the town.”

    What is the real financial impact – in dollars and cents – of a higher bond rating?
    Again, we need only look next door at Little Compton to find the answer. The benefits of the strategy to maintain the highest possible credit rating have already been proven because the town will save close to $1 million in interest on the school bond, according to their budget committee.

    Is Tiverton the highest taxed town in the highest taxed state?
    No. These are falsehoods put forth by the proponents of Option 2. First, Rhode Island’s highest personal income tax rate is not the highest in the country. Furthermore, Tiverton is not the highest taxed town. Tiverton’s residential property tax rate is actually closer to the median of Rhode Island cities and towns.

    Have taxes in Tiverton more than doubled in the past decade?
    No. This is another misrepresentation by the proponents of Option 2. “More than doubled” implies a greater than 100% increase to your property tax bill. Taxes have gone up, but they have gone up for all towns – as have assessments. Increases are driven by town expenditures, the increase in the value of property, improvements made to property, zoning changes, etc. An analysis was conducted on a significant sample, which concluded taxes have increased at a pace with inflation and with other towns. The claim by the proponents of Option 2 actually overstates the increase by more than two-thirds.

    Do elected official have plans for the amount allocated to the Unrestricted General Fund?
    No. The proponents of Option 2 mislead again. Their concern is that the UGF, or “slush fund” as they refer to it, will be raided to fund a contract with the teachers. However, this is simply not true. The proponents of Option 2 oppose anything to do with the schools, despite the fact that Tiverton’s teachers are the lowest paid in the state and the schools continue to perform very well. Nevertheless, any expenditure out of the UGF requires a vote of the citizens in the form of a referendum. The Town Council cannot just spend it.

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